Decision No 318/2024 approving the general framework for the implementation and operation of the support mechanism through contracts for difference for low carbon technologies.

​​​​​​​​​​​​​​​​​​​published on 25 June 2024

We hereby present you below a recent piece of legislation of significant interest for your renewable energy business in Romania:

 
Decision No 318/2024 approving the general framework for the implementation and operation of the support mechanism through contracts for difference for low carbon technologies. Issuer: Government of Romania. Published in the Official Gazette, Part I, No 333 of 10 April 2024. In force from 10 April 2024.
The legislation that has recently entered into force aims to promote technologies that help reduce carbon emissions and combat climate change. It aims to stimulate investment in projects using sustainable and energy-efficient technologies.

Definition of Contract for Difference (CfD)

A contract for difference (or CFD) is an agreement between a "buyer" and a "seller" to pay the difference between the current price of an asset and its price at the time the contract is entered into.

In the energy market, this contract is concluded between the Operator of the Electricity and Natural Gas Market "OPCOM" - S.A. (the "CfD Counterparty") and an electricity producer/investor (the "CfD Beneficiary").

Basically, through CfDs, you can speculate on fluctuations in electricity prices without actually owning the asset itself. This allows investors to benefit from the fluctuation of prices, depending on the anticipated direction of the market.

Technologies eligible for the CfD scheme

These are electricity generation technologies eligible: on-shore wind resources, off-shore wind resources, solar photovoltaic resources, hydro resources, nuclear resources, hydrogen, energy storage.

Contract for Difference support mechanism

The act provides for two support mechanisms:

• ​through tenders (hereinafter referred to as the 'CfD scheme'),
• ​in the form of ad-hoc State aid for eligible production technologies that cannot be tendered as CfD schemes.

 
In the case of the CfD scheme, the CfD contract is awarded to the applicant through participation in a CfD tender, depending on the outcome of the CfD tender.
 
Tenders will in principle take place from the date of entry into force of this Decision and in 2025, on the basis of a CfD scheme for which the liquidity fund is replenished by the amounts provided by the relevant Ministry from the Modernisation Fund (estimated budget at approx. 3 bln. EUR).
 
Announcements on the opening of tenders will be published on the official website of the Ministry of Energy. On this portal, the relevant details of the eligibility conditions for those interested in participating in the tender will also be published.
 
In the case of ad hoc CfD State aid, the relevant Ministry, with the support of the CfD counterpart, may award an ad hoc CfD contract for the power generation project for which, due to the specificity of the technology, a competitive selection process cannot be applied. The terms and conditions of the ad-hoc CfD contract are determined by direct negotiation and are subject to the European Commission's State aid approval decision, following notification of the ad-hoc CfD State aid.
 

General implementation framework

1. ​Conclusion of the CfD contract: a CfD contract is concluded between the CfD counterparty (the Operator of the Electricity and Natural Gas Market "OPCOM" - S.A.) and an investor and determines the payment for the CfD spread between the CfD counterparty and the investor;
2. How the strike price is determined: in the case of a CfD scheme, the strike price for a CfD contract is determined by tender, and in the case of an ad hoc CfD State aid, the strike price for an ad hoc CfD contract is determined by negotiation;
3. Payment conditions under the CfD scheme, depending on market price fluctuations: the beneficiary will NOT receive payments for the CfD difference during periods when the price per settlement interval on the wholesale market, or the average of the relevant prices on these wholesale markets, is negative.
4. Frequency of payments: payments will be made according to the terms and conditions set out in the contract. Payments may usually be made periodically, quarterly or annually, depending on the specifications of the contract.

 

The obligations of the investor (CfD beneficiary) include the following duties

1. ​provides the performance guarantee in favour of the CfD counterparty;
2. complies with the terms and conditions of the CfD contract;
3. obtain all necessary approvals, authorisations, licences and permits required for the development, construction and operation of the project, including planning certificates, building permits, environmental agreements, grid connection agreements, balancing agreements, regulations or contractual obligations, including those specified in the CfD tender and CfD contract;
4. demonstrates, by means of supporting documents, established by order of the relevant Minister, to the CfD scheme operator that the capacity proposed for the project consists of completely new electricity generation capacity;
5. places the CfD electricity generation capacity into operation and commercial operation and meets any other requirements set out in the CfD contract to become eligible for CfD Difference Payments, on or before the commissioning target date;
6. reports to the CfD counterparty the amount of electricity forecast to be generated and delivered to the National Electricity System by the CfD generation capacity in accordance with the provisions of the CfD contract;
7. reports quarterly to the CfD counterparty on the status of planning, permitting, licensing, construction and commissioning of the project and other information required to be reported to the CfD counterparty under the CfD contract and provides any additional information requested by the relevant Ministry and the CfD counterparty;
   
8. pays annually to the CfD counterparty the amount corresponding to the surplus profit obtained from the bilateral contracts established by decision of the President of the Romanian Energy Regulating Authority - ANRE.

 

Risks

The regulatory act contains certain provisions that may pose risks for CfD beneficiaries, such as:

1. ​Risks in the event of significant price volatility
   If ANRE considers that the reference price no longer reflects market prices, leading to overcompensation of CfD beneficiaries and increased costs for consumers, it may revise the reference price.
   
   ANRE may also revise the reference price if it has been notified by more than 50% of CfD beneficiaries, who are subject to the same reference price and who consider that the reference price no longer reflects market prices, thus systematically undercompensating them.
2. Prohibition to sell energy outside organised markets
   The CfD beneficiary must deliver to the National Electricity System and sell only on organised markets all quantities of electricity delivered by the electricity generation capacity covered by a CfD contract, with the exception of quantities of electricity used for its own technological consumption of internal services supplied from the terminals of the CfD beneficiary's generators.
   

The CfD beneficiary is expressly prohibited from selling outside the organised markets any quantity of electricity delivered to the National Electricity System by the electricity generation capacity covered by the CfD contract, in order to prevent a possible voluntary exclusion from the CfD scheme, and compliance with this prohibition will be verified annually by ANRE, subject to applicable sanctions.
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